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I was just reading about strategies to reduce debt, and happened upon the idea of making bi-monthly (in the sense of twice a month) payments to credit card companies. I don't quite understand how this helps more than paying them on time. I suppose if you knock out some of the debt before the due date, it reduces your average daily balance, but can anyone out there give me a more complete picture of how this helps (if that is actually true), and the best way to structure and time these payments to my best advantage? Perhaps this has already been covered in another group of posts. If so, does anyone know where that thread began? Thanks.
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I was just reading about strategies to reduce debt, and happened upon the idea of making bi-monthly (in the sense of twice a month) payments to credit card companies. I don't quite understand how this helps more than paying them on time

Not sure how this works w/ credit cards, did it say to make the full payment twice a month or half payment twice a month? With mortgages, a bi-monthly payment consists of making a half payment every two weeks. The reason this helps w/ the interest is that you end up making 13 payments in a year. Perhaps this is the idea behind the credit card as well.
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Why send 2 payments a month? Why not just increase the amount you send in the once a month check?
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Of course I think this only really works when you get paid bi-monthly!
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Hey Frecs,

If you get paid twice a month, sending in two payments a month (as long as they're each at least the minimum) is easier for some folks to budget - no "fat weeks versus lean weeks".

I send two payments a month to punish my credit card company. They conveniently started posting my what-used-to-be-once-monthly payment on the day I initiated the transaction, which was also conveniently right after the due date for one billing cycle and right before the cycle closing date. So one month had two payments, the next had zero, and subsequent months had late payments. All to the tune of some lovely monthly fees that were really cramping my snowballing style.

Yes, I could've simply moved my posting date to later in the month. But like I said, I wanted to punish them. =) That, and I was afraid that if all I did was move the date for the one payment, they'd find a way to manipulate that one so the same thing happened again. Making two payments a month makes it much harder for them to come up with a situation where at least one of them doesn't post in a billing cycle before the due date.

(On two separate occasions, I was tempted to send *daily* payments to them, but my husband talked me out of that because it would also punish my credit union.)

- Kilbia
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There are basically three conditions under which a credit card (and your payments thereto) exist:

1. You carry a balance and only pay the minimums at the last possible moment (or even worse, dont pay at all).

2. You don't owe them a dime. Your balance is zero.

3. Somewhere in between the first two.

You are being charge interest on every dollar for every day that you owe it. So basically the sooner you pay off a dollar the sooner they have to stop charging you interest on that dollar. You know that paying as much as you can reduces your interest owed. So does paying as soon as you can. If you take this out to it's logical conclusion... paying the full amount right now... then they can charge you no more interest.

xtn
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"If you take this out to it's logical conclusion... paying the full
amount right now... then they can charge you no more interest."


That would certainly be nice, but that's why most of us are here - to find support and encouragement while we whittle our balances down. It's working for me!!
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I was just reading about strategies to reduce debt, and happened upon the idea of making bi-monthly (in the sense of
twice a month) payments to credit card companies. I don't quite understand how this helps more than paying them on
time

Not sure how this works w/ credit cards, did it say to make the full payment twice a month or half payment twice a month?
With mortgages, a bi-monthly payment consists of making a half payment every two weeks. The reason this helps w/ the
interest is that you end up making 13 payments in a year. Perhaps this is the idea behind the credit card as well.

It seemed that the idea was to pay half the payment twice a month, but to make sure that both payments showed up in the same billing cycle.


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If you pay your credit card twice a month, it lowers the average daily balance and therefore, you pay less interest.

Cherry
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So would paying 1/4 of the payment every week be the same, better, or worse?
Queenof3
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So would paying 1/4 of the payment every week be the same, better, or worse?
Queenof3


That depends - if you have all of the amount when you send out the first payment, and the goal is to reduce the average daily balance, then you are better off sending it all at the beginning. If you get paid every week, and have, for example, $50 the first paycheck, then $50 the second, and so on, paying every week will help - it's certainly better than waiting until the end!

Maureen
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So I am asking also it does pay to to apy twie a month cuz I have a friend that says she is paying twice a month and I to was wondering what the point would be to pay twice or just one greater amount
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Cheryl,

If you get paid once a month*, send it all at once, and time it to get posted fairly early in the billing cycle. Since my billing cycles tend to close between the 2nd and the 5th of any given month, the best day for me to send it is the 6th (to ensure that it shows up against this month). This way, your average daily balance is as low as it can reasonably be for the duration of the billing cycle. Since your interest is compounded daily, this is an important thing.

That's what I should be doing. Once I work off this puerile need for blood and vengeance, that's what I will be doing. Or the card will be paid off. I can keep grudges alive for a long time. ;)

- Kilbia

*Or if you can afford to take the entire amount out of your first paycheck of the month.
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With mortgages, a bi-monthly payment consists of making a half payment every two weeks. The reason this helps w/ the interest is that you end up making 13 payments in a year.

NO! NO! Many people mistakenly equate a semi-monthly payment schedule with a bi-weekly payment schedule. A "semi-monthly half-payment" schedule will end up paying the equivalent of 12 full payments per year; a "bi-weekly half-payment" schedule would end up paying the equivalent of 13 full payments per year.

The reason this helps w/ the interest is that you end up making 13 payments in a year.

Bi-weekly "half-payments" will do this (turning a 30-year mortgage into a 23.5-year or so mortgage). Semi-monthly "half-payments" would make zero difference.

Perhaps this is the idea behind the credit card as well.

No, it isn't. Generally the interest on a mortgage is computed only monthly and generally it doesn't make any difference when or how often payments are received--all payments in a cycle (e.g., 15th through the 14th) are lumped together and are processed as if they were received on the same date. What gets the mortgage paid off early is paying more money towards the loan, which pays down the interest. On a bi-weekly "half-payment" schedule, there would be (on the average) two months out of the year when an extra half-payment is made so that extra half-payment would go directly to principal pay-down, essentially making the equivalent of an extra month's payment towards principal pay-down per year. (Someone not on a bi-weekly plan can accomplish the same thing by increasing the monthly payments by 1/12th, so in a year's time the equivalent of an extra payment ends up being made to principal pay-down, and that without a setup fee, nor any extra processing fees, no extra postage, no extra checks.)

The reason why semi-monthly payments help for credit cards is because, unlike a mortgage, the interest is based on the average daily balance, so the sooner one can get the balance down, the less the interest charge generated that month.

The caution, either for a mortgage or for a credit card, is to make sure the extra payment isn't taken as the next month's payment and, if less than the minimum amount due, triggers an "under-payment" charge.
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So I am asking also it does pay to to apy twie a month cuz I have a friend that says she is paying twice a month and I to was wondering what the point would be to pay twice or just one greater amount

Cheryl,

Paying twice a month saves you money. If you pay 100 on the 1st, then pay 100 on the 15th, you don't pay interest on the 100 for the time of 1-15. Then, the payment on the 15 reduces your balance again, so you are paying off your debt.

YOu can pay every single day if you want to. This would help reduce your interest. Whether or not you can, or want to is the issue here. I get paid every two weeks. I send money in then. I also look at my budget every Friday before payday. If I have money left over, I send it to the card. Even $20 pays down some of the principal. Some months, I send in on two Tuesdays(paydays), two Fridays (before payday, if I have extra) and if I get an extra check for some reason into the visa card. So those months, I had five or six payments.

This works for my system. It may not work with yours.

fredinseoul
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"If you get paid twice a month, sending in two payments a month (as long as they're each at least the minimum) "

Why would they both have to be the minimum? As long as both add up to the minimum due, you'll be ok. I think you're confused in think that a payment in an amount equal to the minimum has to be sent. As long as all your payments combined equal the minimum you're account will be in good standing.

That being said, don't fall into the trap of only making the minimum payment due...except on a card with a rate lower than the risk free rate of return.
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Why would they both have to be the minimum? As long as both add up to the minimum due, you'll be ok.
*****
Yeah, that makes sense. I confuzzled myself. Sorry. =)

- Kilbia
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